First time entrepreneurs – Building businesses in India

Just read the couple of articles written by Paul Graham : Y Combinator (answers what exactly does YC do? or Seedcamp, Techstars, MVP etc ) and Equity (explains why should you give 5-6% equity to a program like YC)

The thoughts expressed got me thinking about how should First Time Entrepreneurs (FTEs) go about building businesses in India. While a lot is in common between the approaches of YC, SC and MVP there are a bunch of things unique to the Indian Ecosystem which FTEs should consider.

Uniqueness of India

First things first, only during the last 10 years India has started seeing bootstrapped or garage startups by talented, educated, experienced and passionate folks who dont have access to a lot of capital but have the skills, will to solve problems and the staying power. The number of successes out of these have been limited and have not been really publicized for folks to get inspired by or learn from.

The VC industry is just about 8-10 years old in India as compared to 50-60 years in US and Europe; among them majority of the funds in India are under 5 years old. VC being a long gestation industry we are a good 5-10 years away from seeing major VC success in India. Most of the firms are focusing on the existing pipeline deals in the market and there are quite of few of these available – companies by serial entrepreneurs, companies started by Executives (CXO, VPs) from large companies, some of FTE companies where the traction is fairly significant, also since PE sector has performed very well and the bigger funds are shifting time and money to PE deals. Clearly all of the above are the right things to do for the Indian VC firms, since the firms need to perform for their investors. None of this directly supports the FTEs, which is where the gap that needs to be filled in. We need to create new pipeline of deals that will become successful startups and will feed into the VC pipeline 1-2 years later. That’s the role folks like MVP, iAccelerator, Upstart.in and others are attempting to play.

Another dimension of difference is IT / internet. The penetration of Internet and PCs in India is quite limited (9 computer for every 1000 people, as compared to 700 for every 1000 in USA). On the other hand the awareness and usage of IT in companies, specially SMEs is limited as well. There are a lot of other fundamental needs to be fulfilled in India (remember we are a developing country).

FTEs in India: What to focus on ?

First thing to ensure is to build a cash flow positive business within the initial capital that you have managed to raise (self, friends, family, fools). Keep lowest possible costs and create early revenues. Expenses should ideally be below 50,000 INR and in no circumstances higher than 1,00,000 INR a month.

Dont think of funding as a validation for your venture. Be prepared to wait longer, to build your business to the 50-100 crore revenues in 7-10 years, with VC funding coming after 2-3 years of being in business or no VC funding at all. If this does not appeal – don’t do a startup.

Internet only business models targetting indian market are not going to viable for atleast 2 years ( or more). View internet as a cheap way to build products and get the initial users with zero marketing budgets. From day one build alternate channels : mobile, call center, SMS, kiosks , shops , sales team into your model. Use technology as a enabler to drive costs down and to drive quaity upwards, but do not depend on customers using it directly via internet.

If your idea only lends itself to internet, think about doing it for developed markets like US and Europe. India still has lower costs and we are very bullish on build here – sell to the developed world model.

So while you take into consideration the universal wisdom of building businesses, paying attention to the uniqueness of India can make an big impact on the outcome of your venture.

This article was originally published on Sameer’s blog.